) Council on Wednesday retained the 28% tax on online gaming, casinos and horse racing, said Union finance minister Nirmala Sitharaman. The tax is likely to be effective from October 1, 2023, and the Council will meet again to review the taxation after six months from the date of implementation.The Council, chaired by Sitharaman and comprising state ministers, in its last meeting on July 11 approved levying 28% tax on full face value of bets in online gaming, casinos and horse racing.During the meeting, Delhi, Goa and Sikkim sought review of the 28% online gaming tax, stated Sitharaman during a press conference. "It (28% GST on online gaming & casinos) is expected to be implemented from 1st October... It is also decided that this decision will be reviewed after six months after it is implemented. When I say six months it does not mean starting from today, it begins after when it is implemented," said the finance minister.Rohit Bansal, founder of Super4 said it is imperative that the GST Council reevaluates this decision and supports a more equitable approach that acknowledges the unique challenges faced by smaller industry players."Perhaps exploring a progressive tax structure or extending tax incentives to startups could serve to foster growth and innovation within the sector. The far-reaching implications of the recent dual tax imposition by the GST Council on the online gaming industry cannot be underestimated. This decision has the potential to reshape the landscape, particularly for smaller players, impacting their viability and stifling innovation," he said.
GST applicable on entry levelThe 28% GST announced by the Council will be applicable on entry level and not the winnings, clarified Sitharaman. She further added the Council will go ahead with its decision to levy the GST on face value.Earlier, the Council had earlier stated that the tax on online gaming will be imposed without any differentiation of whether it's based on skill or chance."The Council’s decision to levy GST on deposit made at entry level has brought a sigh of relief for the sector. It has recommended parity in treatment for casinos and online games of skill. With the said amendment, the valuation mechanism for Casino and Online gaming are kept at par i.e., GST will be charged only on the value of coins purchased and money deposited in wallet respectively, rather than levying GST on each game played. This is a welcome clarification for the industry stakeholders," said L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys.Subsequently, the Law Committee, comprising Centre and state tax officers, had prepared draft rules for consideration of the GST Council with regard to computation of supply value for tax purposes.The committee had suggested insertion of a new rule under which value of supply of online gaming would be the total amount deposited with the online gaming platforms by way of money or virtual digital assets on behalf of the player.With respect to casinos, the committee had proposed that the supply value should be the amount paid by a player for purchase of tokens, chips, coins or tickets.
"The decision of the GST Council is not unexpected but nevertheless is going to have a huge negative impact on the industry. While it’s slated to be reviewed six months after implementation, there doesn’t seem to be any indication of a rollback. What is worse is that the plan is to introduce this amendment by way of clarification. This means that the impact could be retrospective. A clear Indication of that is the filing of the SLP in the Gameskraft matter. It is doubtful that the amendments would pass a constitutional challenge. The effort of MEItY to enact the IT Rules is also nullified by clarifying that any bans on online gaming in any state shall not be impacted by this incidence of GST," said Abhishek Malhotra, Managing Partner, TMT Law Practice.
Meanwhile, Ankur Gupta, Practice Leader, Indirect Tax at SW India, said, "By including VDA, they have plucked the overseas gaming platforms who have no base in India and operate only on cryptos or alike if they have Indian customer base. It will be interesting to see how Government will keep a track of compliance by overseas players and how much effective blocking work as operating through changed IP address is a common phenomenon in the industry."He further stated that one interesting amendment is inclusion of platform owner to be considered as supplier. This will be applicable where gaming companies are using third party platforms for their games."The heavy tax burden will be detrimental for gaming companies and gamers. Trickling to livelihoods of game developers, who make the game. The blanket provision on skill and chance games further muddles due process. Additionally, this may move users to illegal offshore betting platforms,” said Shivani Jha, Tech Policy Lawyer.
A letter to Sitharaman
Gamers from Tier II and Tier III cities under the aegis of 'Indian Gamers United' in a letter to Sitharaman have said that high taxation will push the gamers towards illegal and offshore platforms where no tax is payable but will put the gamers into a very high risk.
Responding to a query on how the GST authorities will tax the online gaming companies operating from overseas location, Minister of State for Finance Pankaj Chaudhary said there are sufficient enforcement provisions in GST laws to take action against such platforms who default in paying taxes.
"Sufficient enforcement provisions exist to take action against offshore platforms, which do not pay prescribed GST," reported PTI, citing Chaudhary as saying, in a written reply in the Rajya Sabha.
